HOT TOPIC: “Soaring Gas Prices Hit Washington,” Washington Post 29 April 2006, p. A7.
ARTICLE: “Gas-Price Uproar Is Likely to Shift U.S. Energy Policy: Anxious Congress Weighs Tougher Fuel Standards, Ethanol and Hybrid Cars; Little Short-Term Impact Seen,” by John J. Fialka, Laura Meckler and Steve LeVine, Wall Street Journal, 29 April 2006, p. A1.
ARTICLE: “A Failure to Communicate? Big Oil Thinks It Has a Message, but It Isn’t Reaching Consumers,” by Kate Phillips and Julie Bosman, New York Times, 3 May 2006, p. C1.
OP-ED: “Let’s (Third) Party: Who will take on the energy crisis?” by Thomas L. Friedman, New York Times, 3 May 2006, p. A27.
ARTICLE: “U.S. Makers Facing Glut of S.U.V.’s As Gas Rises,” by Jeremy W. Peters, New York Times, 3 May 2006, p. C3.
ARTICLE: “Bolivia’s Energy Takeover: Populism Rules in the Andes,” by Simon Romero and Juan Forero, New York Times, 3 May 2006, p. A8.
ARTICLE: “Bolivia Nationalization Puts Investors Off Balance: Brazil Initiate Discussions With Other Governments About Potential Solutions,” by Geraldo Samor and Matt Moffett, Wall Street Journal, 3 May 2006, p. A7.
ARTICLE: “Brazil’s Petrobas Halts Investment Planned in Bolivia,” by Geraldo Samor, Wall Street Journal, 4 May 2006, p. A4.
OP-ED: “How Much Oil Is Really Down There? The SEC’s ‘proved reserves’ won’t tell us,” by Daniel Yergin, Wall Street Journal, 27 April 2006, p. A18.
COLUMN: “Premium pressure: George Bush fails to defend an inalienable right: cheap petrol,” by Lexington, The Economist, 29 April 2006, p. 38.
The gas “crisis” reappears for the summer driving season, right on cue. Washington is naturally “shocked” at the obvious market manipulation and price gouging, and politicians stand in line for photo-ops at local gas stations, venting their righteous indignation and ignoring the fact that America has gone out of its way in the past to allow domestic drilling or the building of new oil refineries, so voila! Now they’re going to fix it with a rebate or some showy hearings where oil execs are lined up with their right hands raised (the ultimate photo-op).
It is all just too pathetically predictable to warrant serious comment. Our crisis is nothing more than the piling up of our consumer choices over the past several decades, our willingness to make investments within our own country (especially in refining), and this weird public sense we have that cheap gas is an American right.
So now the market corrects many of those assumptions with the same level of indifference we've long displayed on the subject. And politicians are going to make this process better somehow? Or are they just likely to confuse the issue, as they so often do?
And yet the calls for “action” will be vociferous. Certainly Washington must take the lead, plying various industry players with all sorts of rigged incentives and sprinkling their districts with “much needed” research grants. All of this will be largely forgotten after the fall elections, when the grandstanding will serve no purpose, and the short-term impacts of all this huffing and puffing will be miniscule.
Big Oil will seek to explain itself, but since they’re big and oily, all will be regarded as evil propaganda.
Yes, yes. It’s all their oil companies’ fault, not our car culture, or our environmental culture, or our NIMBY culture. None of that matters.
So we’ll get grandiose calls for “Manhattan Projects” and--yeah baby!--an entire third party to take on this crisis.
Friedman quotes the quintessential DCer David Rothkopf as saying “We used to say the system is broken because it won’t respond until there is a crisis.” But now it’s even worse “because the system can’t even respond to a crisis!”
Smell the hubris there: Washington’s in charge of reality and economics and globalization. If only our “system” would wake up and start “Running the World” better (the title of Rothkopf’s book), we could fix things. This is the epitome of the DC view of the world: “We’re in charge!”
Of course, nothing could be farther from the truth in these matters, but no matter. The public loves to believe the President and Congress really operate the universe according to their own plans. That way we can blame them when things don’t turn out as planned.
Meanwhile, the market does it natural thing: it responds.
SUVs won’t sell as fast. New models will brag about fuel efficiency for the first time in a very long time. Oil companies will do more exploration in response to price. But no one will push for new production to enough of a degree to really drive down prices. Not this late in the Oil Age. Consumption is moving down the hydrocarbon chain inexorably. You can’t expect energy companies to stand watch on oil while it loses its top-dog position across the 21st century.
Of course, not everyone got that memo, so some governments will give into the notion that nationalizing their energy resources will make them more powerful over time, like Bolivia acting like it’s going to thumb its nose at the world by grabbing gas fields, when all it will really do is push its main customer, Brazil, into seeking sources elsewhere. Oh, and Petrobas will cut back its planned investments there to basically zero. CANYOUBELIEVEIT Sweater Man?
Meanwhile, the real culprits (India, China) behind the price pressure will go largely unnoticed in this ritualistic political frenzy in the U.S. Better that they do, though, since who knows what stupid trade tricks Congress might think up in retaliation.
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Comments (9)
Is a world without politicians possible?
It's bad enough to see Washington doing its usual Don Quixote act every time a mass media-frenzied 'crisis' comes up, but sitting here in Korea and listening to Seoul apparently seriously considering driving restrictions along with endless fretting about rising imports is downright depressing.
If economic stupidity could be seen purely as a DC election year phenomenon, I could rest easy. Watching it go global in the areas that will be most adversely affected by it, and in turn bring down everyone else, is mucho-bad.
Posted by Jeremy A | May 5, 2006 2:15 AM
Tom! What do you know about allegations of hedging operations on oil and gas artificially manipulating the market? As I understand it these hedging operations on fuels are even more unregulated than were the "Enron" marketing intrusions. Other blogs are filled with discussion of this unregulated activity affecting (sic?) prices in the consumer end market. To my knowledge regulators and Congress have never looked at this issue. A tracking key may be former Enron traders now involved in oil and gas hedging. I assume the majors have major hedging operations also. Perhaps Daniel Yergin has an opinion on this issue. His book the "Prize" argued that oversupply not undersupply was the industry's past problem. Do books like "Out of Gas" touch on reality. I notice a big fight between the SEC and the majors over how the 70's rules on accounting for reserves is now underway.
Is the real "gap" between producers and non-producers? Friends in a certain "company" have told me for years that Putin long has had an interest and special expertise and training on energy issues and in essence won backing from internal allies because he was willing to build and use the energy card. Is this the new model? Note the recent Bolivian actions! Always remember a fool may ask more questions than a wise man can answer.
Posted by William R. Cumming | May 5, 2006 9:22 AM
A few years ago when just about every MBA was recommending that management fire all their software people and send the work to India I found myself in the exciting world of comission only sales.
A very large number of the people who were already in that field were people who had worked in the oil industry for years until the sub $10 per barrel oil prices of the 1990s made thousands of stripper wells in the US uneconomical and killed off a lot of independant oil companies. Those stripper wells can not be started up again and that US oil capacity is gone forever.
Having in many cases lost their careers, their savings and often their homes, most of those people will never again work in the oil industry and our ability to create additional energy resources is reduced as a result.
Posted by Mark in Texas | May 5, 2006 10:34 AM
I thought I read that in China the electrical grid was so bad that no factory manager attempts to rely on the grid, instead every factory has backup generators to ensure reliable electric power. As a result the Chinese demand for oil goes up the more we import from there. I'm sure a similar situation exists in India. Net/net I'd say the increase in gas price is here to stay. Clearly these spikes in demand and rise in prices are simple supply/demand responses. Higher prices I'm willing to deal with but the last time the govt (under Jimmy Carter) tried to "fix" the problem with price controls the result was gas lines, locking gas caps, even violence at the pump. I'm not looking forward to that again.
Let the market do it's thing.
Posted by Robertk9 | May 5, 2006 11:27 AM
I disagree, but only in a trivial way. Since the NIMBY and environmental policy are largely expressed through political action, political action is necessary to undo it, first by destroying the previous consensus position then by forging a new one. I'm not holding my breath.
Posted by TM Lutas | May 5, 2006 2:59 PM
Some interesting commentary from The Agonist re: oil prices and their geopolitical effects.
http://agonist.org/stirling_newberry/20060506/bolivia_wins_round_one_of_gas_negotiations
Posted by Bolo | May 7, 2006 1:39 AM
As oil peaks, role of virtuality and travel
http://communities-dominate.blogs.com/brands/2006/05/as_oil_peaks_ro.html
Posted by Dimitar Vesselinov | May 7, 2006 10:14 PM
I am kinda optimistic when it comes to energy - I believe where there is a will there is a way. When gas prices shoot up people stop buying SUVs, net result the domestic car manufacturers go bankrupt for relying solely on SUVs. Meanwhile those Japanese come up with hybrids and make a killing on the world market. Hey all the power to them, stupid is as stupid does.
Now if we can only get together and come up with Fusion sometime soon then we can really get to energy independence because then the energy chain would be oil free. Fusion->Electricity->Hydrogen Generating Plants->Hydrogen Cars.
Here's hoping.
Vinit
Posted by vinit joshi | May 7, 2006 11:07 PM
TM Lutas is correct. The imbalance in supply is the result of environmental laws that have discouraged oil refineries and new exploration in the North America. If any progress is to be made, it will require new legislation.
In addition, I believe it is high time that this country stopped taking cheap, plentiful energy for granted and began to look at the real situation. We live in a society that literally floats on a sea of energy. Every product we use, our creature comforts, our connectivity, everything is dependent on energy and most of it is supplied by fossil fuels. And we get a large and growing percentage from countries that are either unstable or hostile. Eventually those fuels are going to run out. We need to and are working on the fuel sources of the future, but now is the time to secure those sources we need for the next twenty-five years or more.
Our vulnerability is not hard to see. If the Strait of Hormuz was blocked for a month there would be global chaos and financial panic. If Venezuela decided to sell much more of its oil to China than to us, we would have to scramble to replace the supply. $3 gas would look cheap.
Because of that vulnerability energy supplies are not just a financial matter but have become an issue of national security. For that reason I believe we need to wake up and start getting the policies in place that will encourage more:
1.Drilling offshore and in ANWR. (The only question about ANWR is not whether it will be drilled but when.) 2.Investment in and development of the Athabaska Tar Sands.
3.Progress on converting coal to liquid fuels.
4.Bio-diesel supplies.
5.Abundant and cost effective ethanol production.
6.Building of new pebble bed nuclear power plants.
All of these steps would move us away from dependence on unstable/hostile countries and toward secure and affordable energy.
Posted by Jim Glendenning | May 8, 2006 12:14 AM